No Evidence, No Section 69A Addition: ITAT Mumbai on WhatsApp Chats and Third-Party Mobile Entries
In income-tax search and assessment proceedings, the Department often relies on mobile phone data, WhatsApp chats, loose papers, third-party statements and digital entries. But can such material alone justify a large addition under Section 69A of the Income-tax Act, 1961?
The Mumbai Bench of the Income Tax Appellate Tribunal has answered this issue in favour of the taxpayer in Naresh Bhavanji Chheda v. ACIT / DCIT, where additions under Section 69A were deleted due to lack of corroborative evidence, denial of cross-examination and absence of physical cash or valuable article found during search. The official ITAT order is dated 05.12.2024, in ITA Nos. 2607/Mum/2024 and 2999/Mum/2024, for AY 2021-22. (Income Tax Appellate Tribunal)
This decision is important for taxpayers facing income tax notice reply and demand notice response, search assessment proceedings, reassessment, faceless assessment and appellate litigation before CIT(A) or ITAT.
Case Details
| Particulars | Details |
| Case Name | Naresh Bhavanji Chheda v. ACIT / DCIT |
| Forum | ITAT Mumbai “B” Bench |
| Appeal Nos. | ITA Nos. 2607/Mum/2024 & 2999/Mum/2024 |
| Assessment Year | AY 2021-22 |
| Date of Hearing | 26.09.2024 |
| Date of Pronouncement | 05.12.2024 |
| Main Section | Section 69A of the Income-tax Act, 1961 |
| Key Issue | Whether additions can be made only on third-party mobile entries, WhatsApp chats and statements without independent evidence |
Background of the Case
The assessee was engaged in real estate development and was also associated with certain partnership firms. Search and seizure action under Section 132 was carried out in the case of certain persons and groups. Based on material found from third parties and statements recorded during search, the Assessing Officer made additions under Section 69A. (Income Tax Appellate Tribunal)
The additions included:
- ₹46.24 crore based on the statement of Shri Shailendra Rathi;
- ₹1 crore based on the statement of Shri Ashish Chhangani;
- ₹42.80 lakh based on the statement of Shri Javed Shaikh; and
- ₹1.73 crore based on WhatsApp chat with Shri Jignesh Gopani. (Income Tax Appellate Tribunal)
The CIT(A) deleted the first three additions but sustained the addition of ₹1.73 crore. Therefore, both the Revenue and the assessee approached the ITAT.
The CIT(A) deleted the first three additions because they were founded only on third-party statements and mobile-phone images/material found from those third parties, not from the assessee. The assessee had denied knowledge of such material, and the AO did not bring any independent corroborative evidence to link the assessee with the alleged cash transactions. CIT(A) held that third-party material may be a starting point for investigation, but it cannot by itself justify an addition under Section 69A. Since suspicion and presumption cannot replace proof, the additions of ₹46.24 crore, ₹1 crore and ₹42.80 lakh were deleted. The ITAT upheld the deletion.
For taxpayers involved in search-related cases, proper tax litigation services and timely legal response become very important because such cases often involve interpretation of documents, digital evidence, statements and evidentiary presumptions.
What Section 69A Requires
Section 69A applies where the assessee is found to be the owner of any money, bullion, jewellery or other valuable article, and such asset is not recorded in the books of account, and the assessee either fails to explain its nature and source or the explanation is not found satisfactory by the Assessing Officer. (Etds)
Therefore, the basic requirement of Section 69A is that the assessee must be found to be the owner of money, bullion, jewellery or other valuable article. This requirement became central in the present case because the ITAT noted that no physical cash, bullion, jewellery or valuable article was found from the assessee in relation to the disputed additions. (Income Tax Appellate Tribunal)
Key Findings of ITAT Mumbai
1. Third-Party Material Alone Cannot Justify Addition
The additions were mainly based on material found from the mobile phones of third parties and statements recorded from those persons. The assessee denied the alleged transactions and requested cross-examination.
The ITAT observed that there was no independent corroborative evidence linking the assessee with the alleged transactions. It held that uncorroborated third-party evidence could not be made the basis for addition in the hands of the assessee. (Income Tax Appellate Tribunal)
This finding is highly relevant in cases involving faceless assessment, scrutiny assessment and income tax appeal, where the Department may rely upon third-party records, loose papers, digital files or statements.
2. Denial of Cross-Examination Makes Addition Unsustainable
The assessee had requested an opportunity to cross-examine the persons whose statements were relied upon by the Assessing Officer. However, such opportunity was not granted.
The ITAT held that when the Department relies on third-party statements against the assessee, denial of cross-examination violates the principles of natural justice. The Tribunal also referred to the Supreme Court ruling in Andaman Timber Industries, where denial of cross-examination was treated as a serious flaw making the order unsustainable. (Income Tax Appellate Tribunal)
This principle is very useful for taxpayers who receive notices based on third-party information. In such cases, a properly drafted income tax demand notice reply should specifically ask for:
- copy of adverse material;
- statement relied upon by the Department;
- opportunity of cross-examination;
- independent evidence relied upon by the Assessing Officer;
- clarification on how the material is linked with the assessee.
3. No Physical Cash Found, No Section 69A Addition
The ITAT clearly observed that Section 69A can apply only where the assessee is found to be the owner of money, bullion, jewellery or other valuable article. In the present case, the disputed additions were not based on any cash, bullion, jewellery or valuable article found from the assessee during search. (Income Tax Appellate Tribunal)
The Tribunal held that in the absence of physical cash being found, addition under Section 69A could not be sustained merely on the basis of interpretation of third-party mobile entries. (Income Tax Appellate Tribunal)
This is a significant relief for taxpayers facing search assessment or block assessment proceedings, where expert assistance in Form ITR-B filing and block assessment representation may be required.
WhatsApp Chat Addition of ₹1.73 Crore Also Deleted
The remaining addition of ₹1.73 crore was based on WhatsApp chat between the assessee and Shri Jignesh Gopani. The Assessing Officer interpreted the words “100 Kg” and “73 Kg” as ₹1 crore and ₹73 lakh respectively.
However, the ITAT found that the WhatsApp chat was incomplete and did not prove that the alleged transactions were actually completed. The Tribunal observed that the Assessing Officer could have conducted further enquiry from the persons named in the chat, especially when their mobile numbers were available, but no such proper enquiry was carried out. (Income Tax Appellate Tribunal)
The Tribunal treated the incomplete WhatsApp chat as a “dumb document” and held that it could not be relied upon without corroborative evidence. Accordingly, the addition of ₹1.73 crore was also deleted. (Income Tax Appellate Tribunal)
Presumption Under Sections 132(4A) and 292C Is Not Unlimited
The Department often relies on presumptions under Sections 132(4A) and 292C in search cases.
Section 292C provides that where books of account, documents, money, bullion, jewellery or other valuable article are found in the possession or control of a person during search or survey, certain presumptions may be drawn regarding ownership, truth of contents and handwriting or signature. (Etds)
However, the ITAT clarified that such presumption cannot automatically justify an addition where the document is incomplete and does not establish a completed transaction. In the case of the WhatsApp chat, the Tribunal held that presumptions under Sections 292C and 132(4A) would apply only in respect of documents containing complete transactions. (Income Tax Appellate Tribunal)
Important Legal Principles from This Decision
1. Suspicion Cannot Replace Evidence
A name appearing in someone else’s mobile phone, WhatsApp chat or loose digital record may create suspicion. However, suspicion alone cannot be treated as taxable income.
2. Third-Party Evidence Must Be Corroborated
If the Department relies on material recovered from a third party, it must bring independent evidence to connect the assessee with the alleged transaction.
3. Cross-Examination Is a Valuable Right
Where third-party statements are used against an assessee, denial of cross-examination can make the addition legally unsustainable.
4. Section 69A Requires Ownership of Money or Valuable Article
Section 69A cannot be invoked casually. The assessee must be found to be the owner of money, bullion, jewellery or other valuable article.
5. Incomplete WhatsApp Chats Are Weak Evidence
WhatsApp chats, mobile entries and digital records may be used for enquiry, but they cannot become final evidence unless supported by credible corroboration.
6. Presumption Under Section 292C Is Rebuttable
Presumption under Section 292C is not conclusive. It cannot replace the Department’s duty to prove the transaction with evidence.
Practical Impact for Taxpayers
This judgment is useful for taxpayers facing additions based on:
- WhatsApp chats;
- mobile phone screenshots;
- third-party statements;
- loose papers;
- diary entries;
- coded words or abbreviations;
- documents found from another person;
- alleged cash transactions;
- search and seizure proceedings;
- denial of cross-examination;
- additions under Section 69A.
Taxpayers should not respond casually to such notices. A proper reply should address facts, evidence, law, natural justice, cross-examination, burden of proof and applicability of Section 69A.
For such matters, taxpayers may take professional assistance for income tax notice reply and demand notice response, tax litigation and ITAT appeal representation, and ITR filing with CPC notice support.
Professional Takeaway
The ITAT Mumbai ruling in Naresh Bhavanji Chheda v. ACIT / DCIT reinforces a very important principle of income-tax law: tax additions must be based on evidence, not merely on suspicion, assumptions or untested third-party material.
Digital evidence such as WhatsApp chats, mobile entries and screenshots may be relevant for investigation, but they must be complete, reliable, legally confronted and independently corroborated.
Where the Department relies upon third-party statements, the taxpayer must be given a fair opportunity to rebut the material and cross-examine the persons whose statements are used against him.
This ruling will help taxpayers, real estate developers, professionals, business owners and consultants dealing with search assessments, unexplained money additions and digital-evidence-based tax disputes.
Need Help With Income Tax Notice or Search Assessment?
If you have received an income tax notice, reassessment notice, demand order, scrutiny notice or addition based on third-party material, you should respond with proper facts, evidence and legal grounds.
For professional assistance, consult an experienced Chartered Accountant in Dwarka, Delhi for notice reply, tax litigation, search assessment and appellate representation.
You may also book a tax consultation with CA Alok Kumar for case-specific guidance.
Disclaimer
This article is for educational and informational purposes only. The applicability of any judicial decision depends on the facts, evidence and stage of proceedings. Readers should obtain professional advice before taking any tax or legal position.
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